2 ANNUAL RESULTS 15
BOARD OF DIRECTORS EXECUTIVE COMMITTEE STATUTORY AUDITORS Jean-Baptiste Chasseloup de Chatillon Chairman Rémy Bayle Chief Executive Officer Ernst & Young Audit Mazars Rémy Bayle Director Alain Martinez Executive Managing Officer SUBSTITUTE AUDITORS Carlos Tavares Director PICARLE et associés Guillaume Potel Michel Philippin Director Chairman of the Audit and Risk Committee François Pierson Director Member of the Audit and Risk Committee PEUGEOT S.A. Director Permanent Representative: Olivier Bourges Member of the Audit and Risk Committee AUTOMOBILES PEUGEOT Director Permanent Representative: Maxime Picat BANQUE PSA FINANCE Position as at January 1, 216 Société anonyme (limited company). Share capital: 177,48, Registered office: 75, avenue de la Grande Armée 75116 Paris R.C.S. (Trade and Companies Register number): Paris 325 952 224 - Siret 325 952 224 13 APE business identifier code: 6419Z Interbank code: 13168N www.banquepsafinance.com Tel.: + 33 (1) 46 39 66 33 Registered in the Register of Insurance Intermediaries (ORIAS) under No. 7 8 51, which may be consulted at www.orias.fr.
1 MANAGEMENT REPORT 1 1.1 Key Figures 2 1.2 Letter from Chief Executive Officer 3 1.3 Operations and results 4 1.4 Analysis of operational results 22 1.5 Financial Situation 31 1.6 Risk Factors and risk management 39 1.7 Internal Control 48 1.8 Share Ownership 5 2 CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 215 61 2.1 Consolidated Balance Sheet 62 2.2 Consolidated Statement of Income 63 2.3 Net Income and Income and Expenses Recognized Directly in Equity 64 2.4 Consolidated Statement of Changes in Equity Attributable to Equity Holders 64 of the Parents and Minority Interest 2.5 Consolidated Statement of Cash Flows 65 2.6 Notes to the Consolidated Financial Statements 66 2.7 Statutory auditor's report on the Consolidated Financial Statements 137 Statement by the Person Responsible for the Annual Report 139
1 - Management Report 1 MANAGEMENT REPORT 1.1 Key Figures 2 1.2 Letter from the Chief Executive Officer 3 1.3 Banque PSA Finance business activities and developments 4 1.3.1 Definition of concepts in the Management Report 4 1.3.2 Summary of financial information 4 1.3.3 Worldwide presence of the Group 7 1.3.4 Operations of the principal subsidiaries and branches of Banque PSA Finance 9 1.4 Analysis of operational results 22 1.4.1 Vehicle sales for Peugeot, Citroën and DS 22 1.4.2 Banque PSA Finance commercial activity 23 1.4.3 Results of operations 29 1.5 Financial Situation 31 1.5.1 Assets 31 1.5.2 Provisions for Non-performing loans 31 1.5.3 Refinancing 32 1.5.4 Security of liquidity 35 1.5.5 Credit Ratings 35 1.5.6 Capital management 36 1.5.7 Outlook 38 1.6 Risk factors and risk management 39 1.6.1 Business risk 39 1.6.2 Credit Risk 39 1.6.3 Financial risks and market risk 41 1.6.4 Risks related to securitization operations 43 1.6.5 Concentration risk 44 1.6.6 Operational risk 45 1.6.7 Non-compliance risk 45 1.6.8 Reputational risk 45 1.6.9 Insurance business risk 46 1.6.1 Correlation between Banque PSA Finance and its Shareholder 47 1.7 Internal control 48 1.7.1 Recurring controls 48 1.7.2 Periodic controls 48 1.7.3 Oversight by Executive Management and the Board 49 1.7.4 Organizational of Internal Control 49 1.8 Share ownership 5 1.8.1 Capital 5 1.8.2 Intra-group agreements 5 1.8.3 Proposals for resolutions for the ordinary shareholders' meeting of April 11, 216 5 1.8.4 Information about the administrative and Management Bodies 52 BANQUE PSA FINANCE 215 Annual Results - 1
1 - Management Report 1.1 Key figures TRENDS IN VEHICLES FINANCED FOR END USERS (in thousands of vehicles) PENETRATION RATE BY COUNTRY (%) AT DECEMBER 31, 215 (PSA Peugeot Citroën new vehicles financed/new vehicles registered) 161 152 156 36.6 34.7 34.5 34.2 32.4 31.6 31. 3.2 28.5 28. 27.5 26.7 25.4 23.4 23.3 22.6 18.3 13.8 13.3 29.9 57 549 576 48.4 731 71 732 68.4 213 214 215 Used vehicles New vehicles Total Slovenia Brazil Spain United Kingdom Russia Germany Switzerland Mexico Portugal Turkey France Italy Slovakia Czech Republic Croatia Poland Austria Belux Argentina Netherlands Hungary Groupe BPF CHANGES IN END-USER AND DEALER LOANS OUTSTANDING LOANS OUTSTANDING BY COUNTRY - IFRS 8 AT DECEMBER 31, 215 (in millions of euros) AT DECEMBER 31, 215 (in millions of euros) 5,55 15,762 21,312 5,891 15,13 21,21 4,39 6,217 1,256 427 3,612 4,39 129 331 46 2,462 5,789 962 2,768 59 1,77 58 1,47 499 1,125 336 626 342 232 93 354 1 93 175 89 121 53 52 2 18 35 29 Corporate dealers End-users 15 16 89 344 144 18 22 48 1 213 IFRS 8 214 IFRS 8 215 IFRS 8 214 IFRS 5 Corporate dealers End-users Total 215 IFRS 5 France UK Germany Spain Italy Belux Netherlands Switzerland Malta Austria Poland Czech Rep. Slovenia Slovakia Hungary Croatia Brazil Argentina Mexico Russia EQUITY AND NET PROFIT (LOSS) AT DECEMBER 31, 215 (in millions of euros) 3,297 3,266 3,312 3,139 CHANGE IN NET BANKING REVENUE (in millions of euros) 238 218 355 91 2,327 173 891 851 1,65 167 113 213 IFRS 8 214 IFRS 8 215 IFRS 8 214 IFRS 5 Consolidated equity Consolidated net income IFRS8 Consolidated net income IFRS5 215 IFRS 5 213 IFRS 8 End Users 214 IFRS 8 Insurances and services 215 IFRS 8 214 IFRS 5 Corporate Dealers Unallocated and Others 215 IFRS 5 2 - BANQUE PSA FINANCE 215 Annual Results
1 - Management Report 1.2 Letter from the Chief Executive Officer The year 215 was, for Banque PSA Finance, that of its transformation. After primarily organic growth since its inception, Banque PSA Finance has made an important step forward, by implementing in Europe, its principal market, a new operational model based upon partnerships, illustrated by the agreement entered into with the Santander group, one of the leading banking player in Europe. The Cooperation Agreement was signed in 214, and its operational start-up took place in February 215, with, to begin with, the launching of joint operations in France and in the United Kingdom. Following this, joint ventures were also created in 215 in Spain and in Switzerland, a commercial agreement in Portugal started up, and joint companies for our Insurance operations were formed in Malta. Cooperation will continue to be rolled out in 216, with the start-up of Italy in early January and of the Netherlands in early February, then, over the course of 216, that of the last four European countries set out by the agreement. A new joint governance adapted to this new cooperation is being put into place, through central and local steering committees. The adding-on of the forces and competencies of Groupe PSA Peugeot Citroën, the second largest European automobile manufacturer, and of Groupe Santander, the top group in terms of market capitalization in the banking sector in Europe, will enable Banque PSA Finance to benefit from a better positioning of its product offering, in order to ensure more effectively its mission to support sales in Europe of the three Groupe PSA Peugeot Citroën trademarks. The initial results, particularly positive and encouraging for the future, were recorded in France and in the United Kingdom, with an increase of 23,7 financing files, as compared to 214. This partnership, an essential lever for the "Back in the Race" plan launched in April 214 by Carlos Tavares, actively contributed to the success of Groupe PSA Peugeot Citroën's recovery plan. In Latin America, with this same strategic objective of support for the sales of our brands, another agreement was signed in July 215 with Groupe Santander in order to create a joint company in Brazil. Its operations will start up there also over the course of the first half of 216. In this new climate, and in a particularly dynamic automobile market in Europe, Banque PSA Finance improved all of its results, in terms of commercial performance and profitability. In the 23 countries where it operates, Banque PSA Finance saw all of its commercial operations grow: excluding China, the number of new vehicle financings increased by 4.85%, with 576, contracts, while that for used vehicles increased by 2.8%, with 156, contracts. Even more significant is the change in the amount of total new financing for end users, rising by 9.5% to 8.25 billion, owing to the move upmarket of the product mix of the sales of the three brands and the ability of the Bank to grow the proportion of financing on vehicle sales. This commercial performance resulted from an overall increase in Groupe PSA's sales within the Bank's scope of operation, but also from an increase in the commercial performance of our teams, which has made it possible to achieve a penetration rate of 29.9% in sales of new vehicles, an historic record for BPF. Just as historic are the results from sales of our insurance and services products, which have grown by 7.2% and have reached, for the first time, two symbolic thresholds: over 1,5, new contracts sold with over two insurance and services contracts per financing contract. In 215, the commercial operations of Banque PSA Finance recorded varying results, depending on its main operating zones, thus following the trend of the markets and sales of the Groupe PSA Peugeot Citroën brands: compared to 214, and in volumes, the European zone has increased by 8.1% for the new vehicle financing portion; Latin America has decreased by 24%. China has recorded excellent results, owing to penetration which went from 16.2% in 214 to 21.1% in 215, thereby confirming its new vehicle financing growth, with an increase of 31.4% in its volumes. This commercial performance has made possible an inversion of the trend of our outstanding loans, which had notably decreased in 214, to increase again by 1.5% to 21.3 billion at December 31, 215. These results were not achieved to the detriment of the profitability of operations. Net banking revenue (IFRS 8 format) was at its highest, at 1,65 million, an increase of 25.1% compared to 214. The cost of risk was at its best historic level, at.33% of outstanding loans. In 215, the commercial dynamic associated with its stringent management made it possible for Banque PSA Finance to generate recurring operating income of 514 million (IFRS 8 format), a significant increase of 52.5%. All while continuing to advance in its traditional operations of accompaniment to the Group's brands in their development zones, the Bank must address the numerous challenges which are appearing in an accelerated manner owing to the emergence of new consumer behaviors. In particular, the long-proclaimed demand for mobility has now become part of reality. In order to meet the demand, Banque PSA Finance will be designing and offering, while working closely with PSA, innovative and flexible solutions, utilizing new technologies, in order to respond to our clients' expectations for new mobilities. After the success of the "Back in the Race" plan, Banque PSA Finance, consistent with its primary mission as a supplier of mobility, is there to support the future strategic growth plan of Groupe PSA Peugeot Citroën. Rémy Bayle BANQUE PSA FINANCE 215 Annual Results - 3
1 - Management Report 1.3 Banque PSA Finance business activities and developments 1.3.1 Definition of concepts in the Management Report The 215 Management report presents information in two fashions: The first fashion is to present financial performance in the format of IFRS 5, which is the method for presenting the financial statements in light of the highly probable disposal of business activities under the cooperative agreement between Banque PSA Finance (hereafter called BPF ) and Santander. IFRS 5 calls for reclassifying the portions having to do with the entities involved in the cooperation into specific headings on the balance sheet and income statement - with the exception of the Maltese entities, for which the existing activities are retained by BPF. In addition, certain liabilities used to finance assets held for sale are also reclassified. Lastly and in accordance with IFRS 5, the comparison period is restated using the IFRS 5 format only for the income statement. Note 2 to the consolidated financial statements goes into more detail concerning the accounting treatments employed to comply with IFRS 5. The second fashion presents financial performance in the format of IFRS 8, which does not reflect the aforementioned reclassifications and neutralizes certain expenses recognized in the IFRS 5 format, specifically: The impairment loss in the Disposal group and the 6 million expense at December 31, 215) Expenses related to the early repayment of certain liabilities. ( 1 million net of taxes, at >December 31, 215)). Accounting by the equity accounting method for the JV partnerships launched in 215 ( 112 million). Note 36 to the consolidated financial statements goes into greater detail concerning the transition from the IFRS 8 format to that of IFRS 5. An additional level of detail has also been provided to operating data: the data is always presented in total, although detail is presented on a fullyear basis, for entities within the BPF and Santander cooperation. 1.3.2 Summary of financial information The following historical consolidated financial overview is based on the consolidated financial statements of BPF included in this annual report and prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Our consolidated financial statements were audited by our independent auditors Ernst & Young audit and Mazars for 215 and 214. FINANCING EXTENDED DURING THE COURSE OF THE PERIOD End-users loans December 31, 215 December 31, 214 % change Of which Santander partnership perimeter December 31, 215 December 31, 214 % change Number of vehicles financed 731,71 7,855 + 4.4 671,726 645,952 + 4. Amount of financing (in million euros, excluding interests) Corporate dealers loans 8,25 7,535 + 9.5 7,944 7,244 + 9.7 Number of vehicles financed 1,655,588 1,682,7-1.6 1,62,413 1,61,174 +.1 Amount of vehicles financing (in million euros) Amount of spare parts financing and other (in million euros) Insurance and services activity 33,267 31,864 + 44, 32,271 3,425 + 6,7 3,231 3,344-33,8 3,93 3,174-25,8 Number of new contracts 1,5,679 1,4,88 + 7.2 1,389,119 1,289,771 + 7.7 4 - BANQUE PSA FINANCE 215 Annual Results
1 - Management Report CONSOLIDATED BALANCE SHEET IFRS 5 IFRS 8 Assets Dec. 31, 215 Dec. 31, 214 % change Dec. 31, 215 Dec. 31, 214 % change Cash, central banks, post office banks 154 38-5. 28 331-15.4 Financial assets at fair value through profit or loss 383 455-15.8 446 455-2. Hedging instruments 13 58-77.6 2 58-65.5 Available-for-sale financial assets 11 14-21.4 144 14 + 928.6 Loans and advances to credit institutions 87 1,7-91.9 1,282 2,297-44.2 Customer loans and receivables 46 4,39-88.6 21,336 21,21 + 1.5 Deferred tax assets 27 83-67.5 96 92 + 4.3 Investments in associates and joint ventures accounted for using the equity method 981 14 + 843.3 69 558 + 9.1 Other assets 23 371-45.3 181 32-43.4 Total assets of continuing operations 2,319 6,52-64.3 24,394 25,146-3. Assets of operations to be taken over by partnership 7,48 18,529-62. Total assets 9,367 25,31-62.6 24,394 25,146-3. Equity and liabilities Dec. 31, 215 Dec. 31, 214 % change Dec. 31, 215 Dec. 31, 214 % change Financial liabilities at fair value through profit or loss 1 4-75. 4 4 +. Hedging instruments 9 54-83.3 12 54-77.8 Deposits from credit institutions 848 6,353-86.7 9,836 6,633 + 48.3 Due to customers 468 42 + 11.4 3,533 2,794 + 26.4 Debt securities 1,786 6,135-7.9 6,396 1,964-41.7 Deferred tax liabilities 12 24-5. 317 332-4.5 Other liabilities 293 394-25.6 984 1,99-1.5 Total liabilities of continuing operations 3,417 13,384-74.5 21,83 21,88-3.6 Equity 2,327 3,139-25.9 3,312 3,266 + 1.4 Liabilities of operations to be taken over by partnership or sold 3,623 8,58-57.4 Total equity and liabilities 9,367 25,31-62.6 24,394 25,146-3. BANQUE PSA FINANCE 215 Annual Results - 5
1 - Management Report CONSOLIDATED STATEMENT OF INCOME (in million euros) Dec. 31, 215 IFRS 5 IFRS 8 Dec. 31, 214 % change Dec. 31, 215 Dec. 31, 214 % change Net banking revenue 113 167-32.3 1,65 851 + 25.1 General operating expenses and equivalent 1-18 -57 + 89.5-482 -398 + 21.1 Cost of risk -1-14 - 92.9-69 -116-4.5 Operating income 4 96-95.8 514 337 + 52.5 Share in net income of associates and joint ventures 123 12 + 925. 11 12-8.3 accounted for using the equity method2 Other Non operating income3-172 -462-62.8-22 -11 + 1. Pre-tax net income -45-354 - 87.3 53 338 + 48.8 Income taxes 41 58-29.3-148 -12 + 23.3 Net income from continuing operations -4-296 - 98.6 355 218 + 62.8 Profit/(loss) of operations to be taken over by partnership 177 387-54.3 Net income for the year 173 91 + 9.1 355 218 + 62.8 1 - Including depreciation, amortization and impairment of intangible and tangible assets, and gains and losses on disposals of fixed assets. 2 - Joint ventures with Santander accounted for using the equity method in IFRS 5: France and UK since February 215, Spain and Switzerland since October 215. China, within BPF partnership with Dongfeng Peugeot Citroën is accounted for using the equity method since 26 (IFRS 5 and IFRS 8 formats) 3 - Including costs of the non-transferred liabilities of operations to be taken over by partnership in IFRS 5. OUTSTANDING LOANS BY CUSTOMER SEGMENT (In million euros) IFRS 5 IFRS 8 Dec. 31, 215 Dec. 31, 214 % change Dec. 31, 215 Dec. 31, 214 % change Corporate dealers 129 427-69.8 6,217 5,891 + 5.5 End-users 331 3,612-9.8 15,119 15,13 -.1 of which Retail 33 3,497-91.3 13,662 13,636 +.2 of which Corporate and equivalent 28 115-75.7 1,457 1,494-2.5 Total Customer Loans and Receivables 46 4,39-88.6 21,336 21,21 + 1.5 BY REGION IFRS 5 IFRS 8 in million euros Dec. 31, 215 Dec. 31, 214 % change Dec. 31, 215 Dec. 31, 214 % change France -2 7-1.3 8,251 8,72 + 2.2 Western Europe (excluding France) 6 2,54-9.8 11,881 11,318 + 5. Central and Eastern Europe 17 319-4.7 539 521 + 3.5 Latin America 162 998-8.4 595 998-4.4 Rest of the World 7 112-3.8 7 112-37.5 Total 46 4,39-8.9 21,336 21,21 + 1.5 NET BANKING REVENUE BY PORTFOLIO (in million euros) Dec. 31, 215 IFRS 5 IFRS 8 Dec. 31, 214 % change Dec. 31, 215 Dec. 31, 214 % change End-users 24 35-31.4 663 58 + 3.5 of which Retail 612 485 + 26.2 of which Corporate and equivalent 51 23 + 121.7 Corporate dealers 3 6-5. 118 87 + 35.6 Insurances and Services (including net refinancing costs) 47 111-57.7 157 142 + 1.6 Unallocated and other1 39 15 + 16. 127 114 + 11.4 Total 113 167-32.3 1,65 851 + 25.1 1 - Represents primarily refinancing cost adjustment reflecting the fact that interest expenses are allocated to customer segments based on our average financing rates, and on the assumption that loans are financed fully with debt. 6 - BANQUE PSA FINANCE 215 Annual Results
1 - Management Report 1.3.3 Worldwide presence of the Group 1.3.3.1 Organization at December 31, 215 The following organizational chart only covers BPF Group entities with material operations. BANQUE PSA FINANCE 215 Annual Results - 7
1 - Management Report 1.3.3.2 Target organization of the cooperation with Santander once the transaction is fully implemented 8 - BANQUE PSA FINANCE 215 Annual Results
1 - Management Report 1.3.4 Operations of the principal subsidiaries and branches of Banque PSA Finance 1.3.4.1 Presentation 1% directly controlled by companies in the PSA group and closely associated with the sales policies of the Peugeot, Citroën and DS brands, Banque PSA Finance (BPF) handles, in 23 countries, directly or with partners, the distribution of financing and service products in order to promote vehicle sales through the three brands' dealerships. It also provides the brand dealerships with financing for their inventories of new and used vehicles and spare parts, along with other financing such as for working capital, and offers individual and business clients a complete range of financing, services, and savings products. Depending upon the country, BPF conducts its operations by steering them directly, or through joint companies (5/5 except China with 25%) with banking or industrial partners, or through other forms of partnerships. Through BPF s organizational structure, its loan approval process is totally independent of the three brands and of the dealer network, and dealers are unable to exert any influence on the approval decision. Typically, BPF's commercial offering combines insurance and services with the financing, in order to best respond to individual and business clients' growing expectations for mobility solutions. In February 214, Groupe PSA Peugeot Citroën and BPF announced their entry into exclusive negotiations with Santander Consumer Finance (SCF) in order to form a 5/5 partnership for developing BPF's operations in Europe. A framework agreement was signed on 1 July 214 to create a European partnership involving 11 European countries. Subject to the approval of the competition and regulatory authorities in the principal countries, transactions started in early 215 and will continue in 216. The newly operational companies are consolidated by BPF using the equity accounting method. The scope of the companies already operational as of December 31, 215 covered 67.9% of BPF's outstanding loans as of that date. In 215, this transaction had already significantly reinforced the competitiveness of the PSA Peugeot Citroën brands, making better penetration of the automobile financing market possible. It enabled the financing operations of the Group to be boosted and sustained, through the use of competitive offers reserved for the brands and their customers. The cooperation is or will be set up in each country through the legal steps described below: SCF S investment through existing entities In France, the entity has been operational since February 2, 215. SCF made a 5% equity investment in SOFIB, which now holds 1% of Crédipar. CLV will continue to be wholly owned by Crédipar. In the United Kingdom, the entity has been operational since February 3, 215; SCF made a 5% equity investment in BPF's existing subsidiary, to which the operations of BPF's existing branch were previously transferred. In Switzerland, the entity has been operational since October 1, 215. The equity of BPF's existing subsidiary was sold to the newly created Spanish JV, owned 5/5 by BPF and SCF. In the Netherlands, the equity of BPF s Dutch subsidiary is 5% held by BPF and 5% by SCF since February 1, 216. In Belgium, SCF will acquire 5% of the capital of the existing Belgian subsidiary over the course of the first half of 216. Investment by SCF through newly created organizations In Spain, the new entity has been operational since October 1, 215, and has received, through contribution, the business of BPF's existing Spanish branch. This new Spanish subsidiary held 5/5 by BPF and SCF. In Italy, the new entity has been operational since January 1, 216, and is held 5/5 by BPF and SCF. It received through contribution the business of BPF's existing Italian branch. In Germany, the new entity, held 5/5 by BPF and SCF, has already received approval from the competition authorities and from the ECB. It will be operational over the course of the second quarter of 216, and will receive through contribution the business of BPF's existing German branch. In Austria, the new entity has already received approval from the competition authorities and the ECB. It will be operational over the course of the second quarter of 216, and will receive through contribution the business of BPF's existing Austrian branch. This entity will be a branch of the new German entity. Excluding financing operations, two subsidiaries started up in Malta on May 1, 215 as insurance companies, held 5/5 by BPF and SCF. Commercial cooperation In Portugal, BPF's existing branch and subsidiary were transferred on August 1, 215 to SCF. A contract for commercial cooperation was also entered into on the same date between BPF and SCF. Investment by SCF in Poland In Poland, SCF will invest in 5% of the capital of the existing subsidiary and 5% in the capital of a newly created Polish subsidiary. The cooperation between BPF and SCF will begin during the course of the second half of 216. BANQUE PSA FINANCE 215 Annual Results - 9
1 - Management Report Santander's investment in Brazil In Brazil, a framework agreement was signed on July 24, 215 between BPF and Banco Santander Brasil, aimed at developing a partnership between the two groups. The new entity will become operational during the first half of 216. For this transaction, Banco Santander Brasil will buy back the shares of BPF's finance companies in Brazil. This partnership will thus take the form of a financial institution held in equal parts by BPF and Banco Santander Brasil. In its other markets: In Turkey, Banque PSA markets its financing and insurance product offerings in cooperation with its partner TEB/CETELEM, who carries the outstanding loans. On December 14, 215, it transferred its banking license to FINANS BANK. In Croatia on November 18, 215, Banque PSA Finance signed the deed of assignment of its portfolio of dealership and end-user receivables to Splitska Banka, a local subsidiary of the Société Générale Bank. This disposal became effective on January 31, 216. Banque PSA Finance initiated on that date a procedure for the liquidation of its local subsidiary. In Slovenia, on November 18, 215, Banque PSA Finance signed the deed of assignment of its local subsidiary to SKB, a subsidiary of Banque Société Générale. This disposal will become effective at the end of 1st quarter, 216. The financing of dealerships and end users for the three brands, Peugeot, Citroën and DS, will be handled in Croatia and in Slovenia by Société Générale starting at the disposal date. Lastly, in China, in early 215, BPF and the manufacturer DPCA reinforced their collaboration through a transfer of shares within their local JV, DPCAFC, which resulted in a new redistribution of the capital held, to 5% by DPCA, 25% by the DongFeng group, and 25% by BPF. Unless otherwise mentioned, the results presented in this annual report exclude operations in China,. A. History and Organization BPF's current structure stems from the grouping of Citroën and Peugeot's financing operations (launched in 1919 and 1929, respectively), both manufacturers having integrated financing very early on into their development strategy to facilitate and expand the acquisition of a vehicle by the great majority of consumers. In 1979, the PSA Peugeot Citroën Group created Crédipar, its vehicle financing arm in France and today a major subsidiary of BPF. PSA Finance Holding was then created in 1982 to consolidate Peugeot and Citroën's financing operations. In 1995, PSA Finance Holding became a licensed credit institution in France and was renamed BPF. BPF created PSA Insurance in 29, bringing together the necessary expertise for the growth and proper management of the insurance and service business. BPF's business has grown over the years with that of the PSA Peugeot Citroën Group. Thanks to our natural geographical platform, we have thereby supported the international expansion of the PSA Peugeot Citroën Group. We are currently active in 23 countries (including China), accounting for 88% of vehicle volume sales by the PSA Peugeot Citroën Group in 215 (including China). Our principal markets are China, Western Europe (particularly France, the United Kingdom, Spain, Germany and Italy), Argentina and Brazil. We have also been in Russia since the second quarter of 21. In IFRS 5 format, as of December 31, 215, operations of the European subsidiaries which have not been sold represent 5% of customer loans (of which 13% in Western Europe and 37% in Central and Eastern Europe), and 5% in the rest of the world (including Latin America). Per IFRS 8, as of December 31, 215, BPF's French subsidiaries accounted for 38.7% of the Group's total customer loans, 58.2% of customer loans in Europe, excluding France (of which 55.7% in Western Europe and 2.5% in Central and Eastern Europe) and 3.1% in the rest of the world (including Latin America). Our sweeping geographical presence gives us a solid base of operations and facilitates our ability to quickly respond and adapt to movements in growth markets. In March 213, BPF entered the retail savings market in France under the PSA Banque brand. We continued to expand our business by launching a retail savings business in Belgium under the brand PSA BANK in September 214 and in October 214, in Germany under the brand PSA DIREKTBANK. In February 215, the savings business in France was transferred to the new joint company created in the framework of the cooperation agreement signed between BPF and Santander Consumer Finance. On July 1, 214 a framework agreement was signed with SCF, the division of Banco Santander specializing in consumer credit, creating a partnership between the two Groups in 11 European countries. Moreover, in Brazil, a framework agreement was signed on July 24, 215 between BPF and Banco Santander Brasil In its principal markets, Banque PSA Finance operates under different formats: In the form of a JV With SCF in France, United Kingdom, Spain and Switzerland since 215 and during 216 in Germany, Austria, Belgium/Luxembourg, Italy, the Netherlands, and Poland. In China with the automobile manufacturer 1 - BANQUE PSA FINANCE 215 Annual Results
1 - Management Report Dongfeng and Dongfeng Peugeot Citroën Automobiles. In Brazil during the first half of 216 with Banco Santander Brasil. In Argentina with BBVA. In the form of a partnership With banking partners who handle the essentials of refinancing and back-office management: In Turkey with TEB / Cetelem, In the Czech Republic and Slovakia with CSOB, In Mexico with BNP PARIBAS. In the form of a commercial partnership With Santander Consumer Finance: in Portugal Solely in Russia. B. Business activities and Strategy Operating in a global economic context which experiences rapid, unforeseeable, and varied economic cycles depending on the markets, within which competition is intensified with the arrival of new players, BPF managed again in 215 to demonstrate the resilience of its economic model, founded on its proximity to the three Brands of the Group PSA Peugeot Citroën, and their dealership network and its reactivity. Its improving commercial performance and the quality of its management and procedures enabled it to generate high-level results in 215. The main levers implemented by the Bank are the following: An extended, structured and customized selection of financing solutions. Our comprehensive offering is developed to meet the needs of the Peugeot, Citroën and DS dealerships and their customers. Our relationship of proximity with the commercial networks allows us to develop financing solutions and services packages specifically designed to address these needs. Close privileged relationships with the Peugeot, Citroën and DS Brands as well as with the dealer networks. We work closely with the Peugeot, Citroën and DS commercial and dealer networks with a combined approach linking vehicle sales to vehicle finance, insurance and service in a single package. Our market research shows that clients renew their contracts more frequently when financing their vehicles through BPF. A first-rate integrated point-of-sale IT system. BPF's information management systems are integrated with those of Peugeot, Citroën and DS and their dealers, allowing the latter to offer clients comprehensive quotes and packaged solutions, comprising financing and ancillary services, in rapid time. Qualified customers can obtain a decision in principle on the credit applications, immediately through the system, while they are at the dealer's premises. Diversified insurance and service offerings with a high added value. We offer our end-user customers a range of financial, insurance and vehicle-service options, which are either offered at the time of financing, or during the vehicle's lifespan. We believe that this one-stop shopping approach enhances our financing products, insurance and services to our customers. Insurance and services increasingly represent a significant portion of BPF's revenues. A controlled geographical presence. BPF has historically supported the international expansion of sales by the PSA Peugeot Citroën Group, benefiting in this way from a natural platform for geographic expansion - first through Western and then Central and Eastern Europe, and then into the fastest growing emerging markets. BPF's growth strategy in emerging markets is also pragmatic: an entry is typically made into the market via a partnership with a long-established financial institution, making it possible for BPF to rapidly become operational, all while limiting its development costs. Reinforced refinancing in 215. The partnership entered into in 214 with Groupe Santander, the top group in terms of market capitalization in the European banking sector, has been in the course of deployment in 215 and 216 in 11 European countries, representing 95% of BPF's total outstanding loans at December 31, 215, per IFRS 8. With a direct access to local refinancing markets, this cooperation makes it possible to significantly improve the positioning and competitiveness of our commercial offering. While fully benefiting from its status as a dedicated commercial partner of Groupe PSA Peugeot Citroën, BPF operates according to an independent management structure, which steers, directly or indirectly, its 23 operational entities, and is responsible for the success of its operations, all while ensuring a rigorous control of the risks inherent to its trade. We formulate our commercial policy in conjunction with our Brand partners. Our asset management system includes a robust retail credit acceptance policy based on an internallydeveloped credit scoring method, and high standards of credit analysis for corporate financing. Management based upon the Asset and Liability Management (ALM) model was put into place in 215 within BPF, aimed at optimizing the adequacy of our resources for our uses. We set pricing policy in accordance with the profile of our target customers. We are not exposed contractually to the residual value of financed vehicles, as the dealers or manufacturers are committed to repurchase the vehicles from us at the end of the financing contract. BANQUE PSA FINANCE 215 Annual Results - 11
1 - Management Report 1.3.4.2 Our Products and Services Our financing products, insurance and services include the following: End-user financing (72% of outstanding customer loans and receivables per IFRS 5 and 71% per IFRS 8 as at December 31, 215). We offer individuals, small and medium-sized businesses, and corporate and equivalent customers a range of solutions, including installment loans for the purchase of new and used vehicles, as well as various leasing solutions with or without purchase options. Financing the corporate dealership network (28% of outstanding customer loans per IFRS 5 and 29% per IFRS 8 as at December 31, 215). We provide Peugeot, Citroën and DS dealers with financing for inventories of new and used vehicles and spare parts, as well as other types of financing such as working capital. Insurance and services. We provide end-user customers and corporate dealers with a wide range of insurance products and services, such as wholelife insurance, unemployment insurance, disability insurance, supplemental insurance to protect vehicles, automobile insurance, and vehicle-related services such as extended warranties, maintenance contracts or service provisions. Retail savings. The retail savings market is active in France, Germany, and Belgium, and consists of savings passbooks and Term Deposit Accounts (only in France and Germany). The proportion of outstanding amounts, all countries taken together, is respectively approximately 87% for savings passbooks and 13% for Term Deposit Accounts, with a certain benefit for the Term Deposit Accounts in terms of building customer loyalty. The growth in results from this business activity at the European level bears out the appropriateness of a plan built around the real economy. The marketing success met with also proves the confidence of savers in the growth outlook for the PSA Peugeot Citroën Group and for BPF. This business is fully consolidated into the scope of the SCF partnership. The table below presents, in value and in volume, the production from new financing agreements in 215 compared to 214, as well as the amounts of outstanding loans, broken down each time by segment: loans to end users or to corporate dealers. FINANCING BY PORTFOLIO End-users loans Dec. 31, 215 Dec. 31, 214 % change Of which Santander partnership perimeter Dec. 31, 215 Dec. 31, 214 % change Number of vehicles financed 731,71 7,855 + 4.4 671,726 645,952 + 4. Amount of financing (in million euros, excluding interests) Corporate dealers loans 8,25 7,535 + 9.5 7,944 7,244 + 9.7 Number of vehicles financed 1,655,588 1,682,7-1.6 1,62,413 1,61,174 +.1 Amount of vehicles financing (in million euros) Amount of spare parts financing and other (in million euros) Insurance and services activity 33,267 31,864 + 44, 32,271 3,425 + 6,7 3,231 3,344-33,8 3,93 3,174-25,8 Number of new contracts 1,5,679 1,4,88 + 7.2 1,389,119 1,289,771 + 7.7 A. Loan Portfolios We analyze our financing activities and outstanding loans by portfolio, based on the customer segment: end-user loans primarily consist of financing for the acquisition of vehicles by individuals, small and medium businesses and corporate and equivalent customers, either through installment loans or leasing contracts; corporate dealer loans consist of financing provided to Peugeot, Citroën and DS dealers for inventories of new and used vehicles and spare parts. Also included are loans and leases provided to dealers to finance vehicles used in their business activities, working capital and mortgage loans for their premises and other financing requirements, including ordinary accounts in debit. See paragraph 1.5.1.2 Outstanding Loans for a breakdown of outstanding loans by portfolio. 12 - BANQUE PSA FINANCE 215 Annual Results
1 - Management Report B. End-user financing BPF finances the purchase and lease of new and used vehicles for individual and business customers through Peugeot, Citroën and DS dealer networks. Our financing solutions include installment loans and leasing contracts with or without the option to purchase the vehicle at the end of the lease duration. Our end-user customers consist primarily of individuals, small and medium-sized businesses and corporate and equivalent customers. As at December 31, 215, the latter represent 9.6% of the outstanding end-user loans and receivables (IFRS8), while individual clients and small and medium-sized businesses represent 9.4% of end-user outstanding loans. The average term of new end-user financing contracts was 41 months in 215. Most of our financing is for new vehicles (79% of the production). We also provide financing for the purchase of used vehicles, primarily vehicles recovered by Peugeot, Citroën and DS dealers at the end of a lease term, or trade-in vehicles purchased by dealers, which may include third-party brands. In some cases, we offer financing to corporate clients wishing to refinance their fleet with used vehicles. In 215, we provided end-users financing for 731,71 vehicles including 155,793 used vehicles. The production of new contracts in 215 increased sharply (+9.5%) and rose to the amount of 8,25 million, representing 476,569 units financed by installment loans and 255,132 units by leasing contracts. In 215, BPF pursued its strategy of offering package-type products (financing + services) which tend to build customer loyalty, in order to launch new vehicles, while further relying upon leasing techniques. Our volume of leasing-type products grew +11.4% and balloon-type loans by +12.2%. We base our pricing policy on an internally developed credit scoring method that assesses the credit risk profile of each customer. Interest rates (and implicit interest rates in leasing contracts) are generally fixed rates. Customers also pay administration fees that vary from one country to another depending on market trends and local regulations. A significant number of our operations depend on promotional rates subsidized by Peugeot, Citroën and DS, aimed at increasing vehicle sales. We generally apply our regular pricing and credit scoring measures to these loans, although we sometimes offer preferential rates via our own marketing campaigns. Geographical coverage We provide financing to end-user customers in 23 countries (including China) which accounted for 88% of Peugeot, Citroën and DS vehicle sales in 215. Our principal markets are China, France and other Western European countries (mainly the United Kingdom, Germany, Italy and Spain), Brazil and Argentina. The table below breaks down our outstanding end-users loans by region as at December 31, 215 (excluding the 1,329 million of outstanding end-users loans in China at the end of December 215). Our outstanding loans provided in Turkey are booked by our partners and therefore do not appear below. The same applies to our partnership in Mexico. OUTSTANDING END-USER LOANS BY REGION IFRS 5 IFRS 8 End-users Dec. 31, 215 Dec. 31, 215 in million euros as a % of total in million euros as a % of total France -2 -.6% 8,251 54.6% Western Europe (excluding France) 59 17.8% 8,467 56.% Central and Eastern Europe 82 24.8% 327 2.2% Latin America 144 43.5% 488 3.2% Rest of the World 48 14.5% 48.3% Total 331 1.% 15,119 1.% BANQUE PSA FINANCE 215 Annual Results - 13
1 - Management Report Marketing and Penetration rates BPF works closely and by priority in partnership with the Peugeot, Citroën and DS dealer networks, financing 29.9% of the sales of vehicles assembled by Groupe PSA Peugeot Citroën in 215 in the eligible perimeter, which is an historic level. We work closely with the Peugeot, Citroën and DS commercial and dealer networks with a combined approach linking vehicle sales to vehicle finance, insurance and service in a single package. Market studies confirm that the automobile renewal rate in the Brand is greater when the clients finance the purchase of their vehicle through the captive finance company of the Group (BPF). This significantly positive contribution to automobile customer loyalty undeniably constitutes a strong incentive for each dealer to enhance their cooperation with the Group. We also pay commission to dealers when we finance vehicles sold by them. Our information management systems are integrated with those of the dealer networks, allowing them greater reactivity with regard to client negotiation and contracting processes. This capacity of one-stop shopping is an advantage that is particularly appreciated by customers. Qualified customers can obtain a decision in principle on the credit applications, immediately through the system, while they are at the dealer's premises. In France, we typically process more than 9% of credit applications for individuals, and more than 7% for businesses, in less than four hours. This integrated information management system is also a key factor in driving down costs. To complement the communications and product offerings of the Peugeot, Citroën and DS Brands on their websites, BPF has developed monthly-payment simulation tools, and in some markets, functionalities for tentative agreements. In parallel fashion, a vendor tablet application developed jointly with the Brands was launched in Great Britain and is now being tested in France. Marketing policy aimed at developing the diffusion of customer-loyalty building offerings (balloon loans, leases with option to buy, long-term leases) accompanied by services accelerated in 215. This type of offering has been utilized in order to support new vehicle launches, with the objective of increasing customer loyalty to the Brand, and accelerating the pace of renewal. This type of offering thus supplements the diversified offering, developed to meet the needs of the Peugeot, Citroën and DS dealer networks and their customers. We measure our penetration rate by comparing the number of new Peugeot, Citroën and DS vehicles we finance to the number of passenger cars and utility vehicles registered by the PSA Peugeot Citroën Group in that country. The number of new vehicles registered includes vehicles purchased for cash, without financing. Our share of the total number of Peugeot, Citroën and DS financed vehicles is significantly higher than that of our competitors (banks, specialized agencies, etc.). The table below shows our penetration rates in the countries where we operate for 214 and 215: 14 - BANQUE PSA FINANCE 215 Annual Results
1 - Management Report BANQUE PSA FINANCE PENETRATION RATE BY COUNTRY PSA Peugeot Citroën registrations New vehicles financed 1 Banque PSA Finance penetration rate Countries 215 214 215 214 215 214 France 678,147 659,197 193,212 185,2 28.5 28.1 Germany 124,829 124,95 42,73 42,783 34.2 34.5 Portugal 22,23 28,15 6,889 8,452 31. 3.1 Spain 182,578 153,39 66,886 57,245 36.6 37.4 Switzerland 27,643 26,24 8,948 7,954 32.4 3.3 United Kingdom 257,383 246,462 89,315 73,795 34.7 29.9 Italy 162,992 141,894 45,66 4,853 28. 28.8 Belux 87, 9,747 19,656 21,412 22.6 23.6 Austria 2,764 21,54 4,844 4,388 23.3 2.8 Netherlands 78,98 64,6 1,813 9,678 13.8 15.1 Western Europe (excluding France) 963,517 895,642 295,741 266,56 3.7 29.8 Slovenia 7,89 8,651 4,851 3,574 68.4 41.3 Slovakia 9,315 8,758 2,565 2,66 27.5 23.6 Czech Republic 16,36 15,178 4,371 2,929 26.7 19.3 Croatia 5,75 5,897 1,463 1,424 25.4 24.1 Poland 29,116 3,354 6,84 8,929 23.4 29.4 Hungary 3,363 6,42 448 733 13.3 11.4 Central and Eastern Europe 7,993 75,24 2,52 19,655 28.9 26.1 Brazil 57,65 93,916 27,877 39,8 48.4 42.4 Argentina 73,48 98,49 13,348 15,73 18.3 15.9 Mexico 7,295 6,147 2,35 1,912 31.6 31.1 Latin America 137,993 198,553 43,53 57,415 31.5 28.9 Russia 11,173 41,177 3,859 8,964 34.5 21.8 Turkey 62,684 46,54 18,927 11,553 3.2 24.8 Rest of the World 73,857 87,717 22,786 2,517 3.9 23.4 Total 1,924,57 1,916,349 575,771 549,149 29.9 28.7 Of which partnership 1,728,43 1,679,19 523,634 5,291 3.3 29.8 perimeter ( 1 Passenger cars and light commercial vehicles. End-users penetration in China rose sharply (21.1% in 215 vs. 16.2% in 214), demonstrating the success of joint operations with the Brands. In one year volume went from 19,371 to 144,244 new car contracts, for a growth rate of 31.9%. Since 213, the volume of contracts financed has increased by +119.7% (+78,596 files). End-user Installment Loans for New and Used Vehicles End-user installment loans generally take the form of fixed monthly payments covering accrued interest and the amortization of principal, although we occasionally offer financing options with balloon payments at the end of the loan. In the case of balloon loans, the customer can usually sell the vehicle back to the dealer at the end of the loan duration for an amount equal to the last balloon payment, which is offset against the purchase of a new vehicle (in which case we receive the payment from the dealer unless we finance the new vehicle as well), or keep the vehicle and either pay or refinance the balloon amount. The BANQUE PSA FINANCE 215 Annual Results - 15
1 - Management Report customer may trade in the vehicle provided it has not exceeded a certain mileage and is in good condition at the end of the loan duration. We limit financing to a specified percentage of the sales price of a vehicle. Borrowers make a down payment that varies in size in accordance with country policy. We do not in any case finance amounts that are greater than 1% of the vehicle sales price (including options and accessories). Many customers (especially individuals) choose to make larger down payments, or, on account of their credit score, are obliged to do so. We also typically require that a customer's total debt exposure (monthly vehicle loan repayments plus other commitments, such as home mortgage loans) does not exceed a certain percentage of household revenue. Loan terms typically range from one year to six years, varying by country. Repayments are generally monthly. In some cases it is, however, possible to delay the first installment for 6 to 9 days. We do not make loans with negative amortization or similar features. Borrowers in certain countries may prepay their loans at any time, while in other countries this is only possible if the vehicle is seriously damaged or stolen, or if we otherwise consent to prepayment. Fees may or may not be due upon prepayment, depending on the country and applicable regulations. All of our installment loans are backed by the vehicle that is financed, although the form of security depends on the country. In some cases, we receive a pledge, charge or other lien on the vehicle, which we can enforce in case of default. In other cases we purchase the vehicle from the dealer and instantly resell it to the customer with a title retention clause, allowing us to recover the vehicle in case of default. We are able to enforce our rights without judicial procedures in certain countries, and require a court order to recover a vehicle in others. In individual cases, we may accept third party guarantees, co-borrowing agreements or other collateral from the borrower. We also accept company shares or trading assets as guarantees from corporate and equivalent customers. We may also be named as a beneficiary of life, car or accident insurance policies, and occasionally obtain ancillary rights, such as vehicle warranty or maintenance contract transfers. Lease Financing We offer both long-term leases and leases with purchase options (we refer to the latter as buyback contracts ). All our leases are recorded as financial leases in our consolidated financial statements, and included in customer loans and receivables. Leased vehicles are not recorded as fixed assets in the Bank's IFRS 8 consolidated financial statements. We purchase vehicles from Peugeot, Citroën and DS dealers and lease them to end-user customers. We offer one to five year contracts, and give end-user customers the option either to return the vehicle at the term of the lease, or to repurchase it at its residual value. Generally, we remain the owner of the leased vehicles throughout the lease term. Should the endusers choose or be obliged to return the vehicle at the end of the lease term, the dealer or manufacturer is committed to repurchase the vehicle from us directly upon delivery by the customer at a price determined at the time of entry into the lease. As a result of the lease structure, we do not bear the buy back risk (so long as the dealer or manufacturer complies with its buy-back obligation). The price the dealer or manufacturer pays us is not affected by any penalty fees the customer may incur if the vehicle is not in a satisfactory condition or has exceeded its agreed mileage. However, we retain the risk of the value of the vehicle if the customer ceases to make payments on the lease, as the sales value of the vehicle may not be adequate to compensate us for the loss of lease payments. We may therefore negotiate additional payments in advance to cover potential losses in the event that the customer ceases to make payments and we repossess the vehicle. Underwriting, Payments and Collection Peugeot, Citroën and DS dealers offer our endusers financing solutions to their customers as part of the overall vehicle sales offering. We give dealers access to our online information system, allowing them to request, and for the most part obtain, a financing decision in principle and pricing while the customer is at the dealership. Loan terms are processed together with the vehicle sales agreement. The credit granting policy relies on a system of delegation, especially for customers whose score is below a certain threshold. We have established separate credit criteria for new and used vehicles, individuals and businesses, and for installment loans and leasing contracts. We obtain inputs for scoring credit applicants from customer provided documents, from internal database built up from detailed customer profiles and from payment histories. We typically verify customer information with credit databases made available by public entities (such as the Banque de France) or commercial services (such as Experian and CRIF). For corporate and business customers, we use a variety of public and commercial sources to verify credit standing. When we refuse financing applications, we maintain records for a period of time, which produce automatic alerts if the customer re-applies for financing. We generally collect regular payments from customers through a direct debit system. In cases of non-payment, we activate a second debit order in order to automatically deal with as many arrears as possible. For residual non-payments, we typically issue reminder notices or call the customer within days of the late payment, and repeat the process until the incident is resolved. In most countries, we use in-house collection teams to handle this process. We have two international recovery centers that initiate recovery procedures, one located in Warsaw, Poland for our main Northern European subsidiaries and branches, 16 - BANQUE PSA FINANCE 215 Annual Results